Remember back in 2009, when critics (including us) were claiming in the Cash for Clunkers program would just steal demand from the future? Well, about a year later here is some evidence that could be attributable that: Retail sales dropped in June by 0.5 percent, 80 percent of which was due to auto and gas sale declines.
The economy is weak, and the retail sale decline for the second straight month is signaling (along with a host of other data) a lethargic recovery ahead. But it didn’t have to be this way. There is a host of evidence pointing at the stimulative failure of Cash for Clunkers (C4C). Pretty much all economic benefit of the C4C was wiped out by the drop in sales immediately after the program ended. Here is a chart I put together for a Reason magazine article in April:
But stolen demand can have reverberating effects, since skewing the market has a host of unintended consequences. The drop in auto and gas sales can be linked to a systemic distortion of the marketplace by stimulative programs. The pain felt now could have been taken care of all at once last year instead of trying to spend out of the recession. We’ll see what earnings reports add to the outlook for the economy.